WASHINGTON (AP), Sep 25 _ The housing market is making a comeback, but it's not impressing anybody. New home sales rose a tepid 0.7 percent last month, missing Wall Street expectations.

Builders are seeing a drop-off in foot traffic because homebuyers are running out of time to take advantage of a federal tax credit of up to $8,000 for first-time owners.

The new home sales report tallies sales contracts signed in August, rather than final purchases. And to qualify for the credit, both the construction and the sales transaction must be completed by the end of November.

One of the nation's largest builders, KB Home, eased back on its promotions for the tax credit last month and saw sales decline.

``Not huge, but we did see a softening,'' said Jeff Mezger, president of the Los Angeles-based company.

Nationwide, new home sales inched up to a seasonally adjusted annual rate of 429,000, the Commerce Department said Friday. That compares with July's reading of 426,000, which was revised down from 433,000. Economists surveyed by Thomson Reuters had expected a pace of 440,000.

While August was the fifth straight monthly increase and the strongest report in almost a year, sales were 4.3 percent lower than the same month last year. Sales have risen 30 percent from the bottom in January, but are off about 70 percent from the peak of four years ago.

``From a builder's perspective, the market for selling new homes is still brutal, despite the pickup in sales in recent months,'' wrote Patrick Newport, an economist with IHS Global Insight.

The report was the second straight disappointing sign for the U.S. housing market, which is struggling to emerge from the most severe bust in generations. On Thursday, the National Association of Realtors said sales of previously occupied homes, which make up the bulk of the market, dipped 2.7 percent last month.

While August's housing reports have been disappointing, ``we believe both remain on an upward trend,'' wrote David Resler, chief economist with Nomura Securities.

Sales of lower-priced properties are surging, pulling down the median new home price to $195,200, off 11.7 percent from $221,000 a year earlier and 9.5 percent below July's level of $215,600. That was the largest monthly drop on records dating to 1963.

There were 262,000 new homes for sale at the end of August, down more than 3 percent from July and the lowest in nearly 17 years. At the current sales pace, that represents 7.3 months of supply _ the smallest amount since early 2007. The decline means builders have scaled back construction to the point where supply and demand are coming into balance.

Still, it's taking more than a year to sell the homes on the market.

``No one ever said that the homebuilders were breaking out the bubbly and party hats and doing the cha-cha around town,'' wrote Jennifer Lee, economist with BMO Capital Markets.

Sales varied dramatically around the country. The best performance was in the West, where sales rose more than 12 percent, and the worst was in the Northeast, where sales sank more than 16 percent. They were unchanged in the South, and down nearly 6 percent in the Midwest.

Meanwhile, KB Home posted a smaller third-quarter loss of $66 million on Friday as new home orders increased and the builder cut costs. Though the results missed analysts' expectations, KB Home said its new orders jumped 62 percent in the third quarter from the year before, with every region showing annual growth.

And fewer homebuyers backed out. The company's cancellation rate dropped to 27 percent during the quarter, compared with 51 percent a year ago.